The most widely reported story regarding this year’s election
results was the Democratic Party achieving majorities in both the U.S. House of
Representatives and Senate. But while that story received the most coverage, it
might not have been the most significant one. That status likely belongs to the
success of a number of property rights ballot initiatives.

Regulatory takings occur when the government enacts a regulation or law that diminishes the value of the property but does not take ownership.

In all, 13 states had property rights initiatives on the
ballot (including one that was on Louisiana’s primary ballot). Ten of them
passed. Some of these 13 proposals dealt solely with physical takings and others
dealt with both physical and regulatory takings.

Traditionally, a property owner has numerous rights regarding
his or her property. These include, but are not limited to, the right to possess
the land, to exclude others from the land, to use the land or to sell the land.
Property lawyers often refer to these various rights as "a bundle of sticks."
Physical takings occur when the government, after paying just compensation,
takes physical possession of a piece of property and puts it to public use. In
essence, the government takes all the sticks. Regulatory takings occur when the
government enacts a regulation or law that diminishes the value of the property
but does not take ownership. With regulatory takings, the government takes some,
but not all, of the sticks.

Regulatory takings are an insidious way for a society to
achieve its goals. With regulatory takings, the government generally does not
have to pay for the property owner’s lost value unless the property’s value has
been lowered to almost nothing. With physical takings, the government must pay
the full value of the property when it wants to use it for a public use. In
contrast, with regulatory takings, the government can limit the manner in which
the owner can use the property (i.e. the government can take a stick or two)
without having to pay for it. These limiting regulations are in effect free
public uses, and the landowner pays a one-person tax.

A couple of examples may help illustrate the concepts. If the
government takes property valued at $100,000 in order to build a road, then the
government pays $100,000 to the former owner and the cost is dispersed to all of
the government’s taxpayers. But if the government imposes a wetlands regulation
that lowers the value of that property from $100,000 to $40,000, it is the
landowner alone who absorbs the entire $60,000 loss. The government pays nothing
and it thereby receives a $60,000 benefit for free.

In this election cycle, reformers took three courses. Some
chose to present to the voters only physical takings reforms; every one of those
measures, including Michigan’s Proposal 4, passed overwhelmingly. In Washington,
reformers solely focused on regulatory takings and aggressively sought to
compensate property owners for any regulation that came into effect since 1996.
The Washington property rights advocates were severely outspent, and the
initiative was defeated. Reformers in three states placed initiatives that
combined physical takings reform and regulatory takings reform. In Idaho, a
combined reform was defeated. In California, a combined initiative was narrowly
defeated, but reformers are already looking to 2008 and might not be outspent by
more than 3-to-1 again.

In the one state where the property rights advocates were not
outspent, Arizona, a combined reform initiative passed with 65 percent of the
vote. Arizona thus joins Oregon, which passed a regulatory takings measure in
2004, as a state that requires the government to either compensate an owner for
the value lost due to the regulation or to not enforce the regulation against
that owner.

Under the Michigan Supreme Court’s current controlling case
law, regulatory takings are generally not compensable, though there is a
possibility that the court could reexamine this issue in the right case.
Regardless, given that slightly more than 80 percent of Michigan residents voted
in favor of Proposal 4, it seems likely that either through the Legislature or a
petition drive regulatory takings will need to be addressed. Joining the
national trend, the people of Michigan expressed a clear desire to make sure
that property owners are protected from governmental abuse. Requiring the
government to pay for property that it devalues is the next logical step.

#####

Patrick J. Wright is senior legal analyst at the Mackinac
Center for Public Policy, a research and educational institute headquartered in
Midland, Mich. Permission to reprint
in whole or in part is hereby granted, provided that the author and the Center
are properly cited.

ISSN: 1093-2240,
SKU: V2006-36

Summary

Government regulations often result in the loss of use or value of private property. Instead of saddling an individual owner with the cost of a public benefit, the government should compensate the affected party, as now happens in Oregon and Arizona.